Giving Thanks Through Financial Gifting

The holiday season is an opportunity to reflect on what we’re grateful for, and many of us celebrate that gratitude by giving back. Beyond traditional presents and holiday gestures, financial gifting can be a meaningful and impactful way to support loved ones or causes that resonate with our values. This approach not only supports your personal goals of giving back, but it also offers financial benefits, helping you maximize the positive impact of your wealth.

Here’s how you can create tax-efficient financial gifts, support future financial security, and make the most of your holiday giving through charitable contributions.

Tax-Efficiency in Charitable Giving

One of the benefits of financial gifting is the potential for tax savings, especially when gifts are made strategically. By planning your charitable donations around tax considerations, you can ensure that your contributions go further while reducing your own tax liabilities. All donations must be made by 11:59 PM on December 31st to qualify for a 2024 tax deduction.

If you’re giving to a specific charity, check to see that it qualifies as a tax-exempt organization by using the IRS Exempt Organizations Search. Only tax-exempt charities qualify for deductible donations, so it’s essential to confirm eligibility before it comes time to claim your donations when filing your taxes.

Bunching Charitable Contributions

An increasingly popular approach for charitable donors is “bunching” their contributions. Bunching involves combining two or more years’ worth of charitable donations into a single tax year. This approach is particularly beneficial for those nearing the standard deduction threshold. By concentrating donations, you may qualify for a larger itemized deduction, offering a tax advantage that wouldn’t be available with smaller, annual donations. It’s a strategic approach that can make a meaningful difference both for you and the causes you support.

Donor-Advised Funds

For those interested in a structured but flexible way to give, donor-advised funds (DAFs) offer a powerful solution. Contributions to DAFs are tax-deductible in the year they are made, yet they allow for flexibility in how and when funds are distributed to charities. This means that, while your contribution is no longer technically yours, you retain advisory privileges and the ability to recommend how the funds are distributed.

Once in the fund, the contributions grow tax-free, meaning that more money is available for charitable giving over time. DAFs can be a long-term charitable vehicle, offering a way to plan and manage your philanthropy well beyond the current holiday season.

Qualified Charitable Distributions

For those currently age 73 years old and up, who are required to take Required Minimum Distributions (RMDs) from their IRAs, a Qualified Charitable Distribution (QCD) is an ideal tool to support charitable organizations while addressing tax responsibilities.

The benefit of a QCD is that it allows you to fulfill part or all of your RMD requirements while excluding the distribution amount from your taxable income. Not only can this reduce your overall tax liability, but it also offers an impactful way to support charities without affecting your cash flow.

Notably, once you reach the age of 70.5, you can transfer funds directly from your IRA to a qualified charity even if your required minimum distribution age is after age 70.5.

However, not all charities qualify for QCDs, so be sure to check with a tax advisor to ensure your chosen charity is eligible to receive these contributions.

ARK Financial Wellness: Your Partner in Giving Back

We’re here to help make your holiday giving meaningful, informed, and impactful. Whether you’re interested in maximizing tax benefits, exploring donor-advised funds, or utilizing QCDs, we can guide you through the options. This holiday season, give thanks by giving back—and let us help you create a gifting strategy that reflects your values and meets your financial goals.